By  on November 6, 2007

The Home Shopping Network is about more than cubic zirconium.

HSN has a revamped lineup of merchandise and a new look under the leadership of former Nike executive Mindy Grossman. On Monday, Barry Diller, chief executive officer of parent IAC/InterActiveCorp., said the media and Internet company will break itself into five publicly traded businesses, spinning off HSN and its other largest units, while keeping the 30 fastest-growing firms in its portfolio.

The corporate breakup comes as Grossman, ceo of HSN's parent, IAC Retailing, is beginning to see the results of an 18-month turnaround effort.

For the third quarter, revenue at HSN advanced 5 percent, excluding America's Store, a spin-off of HSN, which closed in April. Online sales grew by double digits. "HSN, I believe, now has a solid strategy and the leadership to thrive as a 'pure play' retailer," Diller said in a statement.

The previous two quarters were bumpy. In the first quarter, HSN's revenue, excluding America's Store, grew 1 percent. HSN's revenue in the second quarter declined by 1 percent. Excluding the results of America's Store, HSN grew revenue 3 percent in the second quarter.

When IAC reported third-quarter results last Wednesday, Diller said, "Trends at our businesses are good, and particularly so at HSN. I believe that Mindy Grossman and her team have now become acclimated and are beginning to demonstrate the great retailing smarts that we knew they were capable of."

Since arriving at HSN in May 2006, Grossman, former Nike Inc. global vice president of apparel, has sought to change the network's image as a purveyor of cubic zirconium jewelry and embellished kitschy apparel by introducing fashion-forward products, more entertaining programming and new sets and graphics. Grossman has tried to dispel the notion that HSN shoppers have low incomes and a low taste level, citing examples of her theory such as Kooba handbags, $800, and Theory jackets, $855, which sold out in August during a program, "Scoop Style," with Scoop NYC co-owner Stefani Greenfield.

"When I first came to the company everybody asked me, 'Are you going to go high end?'" Grossman said, sitting in her office at HSN's St. Petersburg, Fla., headquarters as multiple TV screens broadcast HSN shows and those of the competition. "We're in 90 million homes. We need to be aspirational. We have a floor we won't go below in terms of quality and taste level, but we're not looking to be a luxury brand. We've sold $3,000 Carlos Falchi handbags, but we don't want to ever make the customer feels she's not welcome."Grossman's strategy is to make HSN more like traditional TV and less like typical shopping channels. She's hired executives to develop new sets and graphics and instituted a no-hard sell edict for hosts. Home products are now displayed in a set that looks like a well-appointed dining room, while the set for Sephora, which has a standing appointment at HSN, mimics the retailer's stores.

Grossman, who ran Polo Jeans before building the apparel business at Nike, is pushing hard on the fashion front, relying less on older core brands and suppliers. She has hired industry veterans such as Lynn Ronon, Burberry's senior vice president of North Asia, who was chief merchant of Lane Crawford and worked for 16 years at Saks Fifth Avenue.

The network's revamped spring fashion week, Aug. 17-21, incorporated trends such as the Mod look and featured an editorial presentation style, with a celebrity guest expert to explain the trend and a runway for models to show off the look. In the past, shows were more static, usually with an HSN host and guest seated in a studio discussing a product's finer points as the camera cut to images of the merchandise splayed out on a table.

In addition to runway presentations, Grossman insists on photographing all fashion on models. HSN introduced its first outdoor set during fashion week, featuring a gazebo with a reflecting pool. For the Scoop Style show, a long sheet of Plexiglas covered the pool to form a runway. Executives said the network has seen a 25 percent increase in new customers over last year — and they are buying 12 percent more.

Frenetic buying activity was evident during fashion week. At midnight on Aug. 20, for example, the green room at HSN was jumping. In a corner, Grossman was glued to a television monitor where sales results for the show in progress were displayed in real time. As the gray bars on the screen moved to the right, indicating an upward sales trajectory, Grossman cracked a wide smile. Viewers were responding to the network's new Miss Tina collection.

Sales of the line of apparel, footwear and accessories created by Tina Knowles were running 40 percent ahead of plan. Knowles, whose fashion credentials include styling the costumes for her daughter Beyoncé's performances and the House of Deréon, a separate collection sold in department and specialty stores, had to cut short an earlier show because products were selling out too quickly. HSN executives wanted to have plenty of merchandise for the 11 p.m. hour, which is considered prime time.In the short term, at least, the home shopping networks can forget Donna, Calvin, Ralph and Karl. HSN and its rival, QVC, chased them in the Nineties. Those designers seem no closer to selling on the tube, although Michael Kors appeared on QVC last year and HSN sells Nanette Lepore and Randolph Duke.

HSN's strategy of luring young designers and stylists such as Robert Rodriguez and Wayne Scott Lukas for exclusive deals allows the network to grow the businesses at its own pace.

"I'm not looking for a capsule collection [from a famous designer], where someone comes in and goes away," Grossman said. "We want to continue to develop designers with lifestyle concepts. We consider ourselves less of a department store and more of a complete network of specialty stores. We offer a very distinct and curated point of view."

Rodriguez can develop his Fleur line into a complete lifestyle collection, Grossman said. It's a long-term commitment from the network — as long as the products are performing. HSN declined to discuss how deals are structured, but said it buys all inventory on front end.

Scoop NYC could spawn separate shows for some of the labels featured by Greenfield, such as Stuart Weitzman, Vince, AG Adriano Goldschmied and Lee Angel. "It been easier to approach designers with the changes at the network,'' said Belinda Rohleder, HSN vice president of softlines. "We were just at Intermezzo [a trade show in Manhattan]. When we walked by the Vivienne Tam booth they were interested in this medium. There's been a lot of buzz since Mindy came on board. Our evolution would be at some point to have our own design team and product development team."

Greenfield said she plans to return in February and showcase Tracy Feith, AG, Poupette, Ben Amun, Paviana, Hat Attack and Jennifer Miller jewelry. "The customer loves accessories and jewelry and loves head-to-toe looks," she said. "They're really entertained. We use the same eye [when choosing products] for HSN as we do for the stores."

Grossman believes it's only a matter of time before A-list designers change their minds about HSN, the fourth-largest U.S. cable network and the eighth largest overall, whose viewers have an average household income of $61,000. "It's such an amazing vehicle to use to tell a story," Grossman said. "Our goal is to continue to expand our portfolio. In the future there will be a tremendous opportunity to develop or partner or acquire. I would never not take advantage of an opportunity. The industry is in constant change. Right now we're focused on getting our strategy right."Grossman believes HSN has "made quantum leaps forward" on the fashion and beauty sides of the business. "We asked ourselves, 'How do we make fashion more relevant?' [Our customers] want to know how to put it together, how to wear it based on their lifestyle. In ready-to-wear we were too traditional and mature. Our customers are on-trend, but they're not trendsetters."

Sportswear, accessories and fashion jewelry account for 17 percent of HSN's total volume, Grossman said. "Those areas are some of our biggest opportunities." The ceo views hundreds of hours of HSN programming, analyzing the presentation style of hosts, gauging the quality of products and the effectiveness of the pitch. She even road-tested some of the products. "You have to immerse yourself in it and study it," she said. "I've bought 1,000 Huggable Hangers, Hanky Panky panties, a chocolate diamond ring, some Scoop stuff and a Vivitar camcorder."

"Mindy had a vision of the brands she wanted," said Andy Sheldon, senior vice president of television at HSN, who arrived in December from iBuy in the U.K., and was charged with overhauling HSN's on-air image. "She said, 'I'll never be able to get these brands to sit down with me with what we have now.' We're taking lifestyle, entertainment and commerce and weaving those things like it's never been done before. The presentation style has changed. It's not hard sell. A few years ago it was OK to hawk a product loudly. I've been working with the hosts in creating a style that's more like you're shopping with your girlfriends."

Sheldon hired Oscar Blandi, who sells his products on HSN, to update the hosts' hairstyles.

"We're working on various concepts and formats," Sheldon said. "We plan to do shows with live audiences. We did a show with three rising chefs in our studio. It was like 'Iron Chefs.'"

Publicists Elizabeth Harrison and Lara Shriftman began selling their Party Confidential collection on HSN on Saturday, and HSN in May launched celebrity caterer Serena Bass' tabletop line and Barbara Hulanicki, founder of avant-garde fashion line Biba, will launch Hula with tunics, Russian shirts and sequin scarves.Grossman has sought change from HSN's existing brands. Laurie Feltheimer, founder of Hot in Hollywood, which sells fashion and accessories inspired by celebrity style, priced from $19.99 to $99, said, "They've given a challenge to older, more established brands like mine to become more fashion-forward." A Hot in Hollywood suede boot, a Today's Daily Special at $69.90, sold 28,000 pairs, Feltheimer said.

"You see the improved sets and the transformations and new [brands] like Scoop and Miss Tina,'' she said. "Before, I sold single items. Now, it's a total look."

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